NEW DELHI — It has just shot past the 100-store mark, celebrating five years of reshaping the retail landscape in India. But Reliance Brands president and chief executive officer Darshan Mehta said the company remains hungry for more.
Its focus on bringing global brands to India has made some major changes to the mall mix in India — Diesel, Ermenegildo Zegna, Thomas Pink, Steve Madden and Brooks Brothers are a few of its 14 brands. As a subsidiary of the $70 billion conglomerate Reliance Ltd., the company had a strong starting point.
Sitting in his office at Nariman Point, looking out at the Back Bay, the waters of the Arabian Sea, and with his customary calm determination, Mehta talked about how there is no looking back. “We’ve broken even at a store level, and next year will do so an entity,” he said, in an exclusive interview with WWD.
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It is a feat given the string of broken relationships and changing partners that global brands have had in India in recent years.
The connection with the brands is obvious walking through the offices of Reliance Brands, which are tasteful and well-lit, spread over several floors. There are little nuggets of wisdom or laughter by Kenneth Cole, one of Mehta’s brands that has a strong growth plan for India.
But it is walking through the malls where the real strength of Mehta’s vision is on display. Clearly, he understands how to play for location in a market where mall developers hold all the strings. He has also focused on catching the imagination of the fast-growing middle class of 400 million in India, focusing on aspirational spenders, and drawing in global travelers and those shoppers who already believe in brands.
Launches this year include BCBG Max Azria and, this fall, the Dutch lingerie brand Hunkemöller and Juicy Couture.
India’s $550 billion retail market continues to grow in double digits; it is expected to double to $1 trillion by 2021, according to a recent report by the Confederation of Indian Industries.
Mehta has plans to ride this wave, and here he shares some key insights.
WWD: Is the five-year marker for your brands significant in terms of breaking even and in making a dent in the Indian retail market scene?
Darshan Mehta: I have always shied away from articulating vision statements, it sounds like a sort of arrogance, a form of chest beating. But if someone were to really ask me about where my corporate soul really lies, and where can I say, “Job well done,” I would say we have scored very well both in strategic and financial terms.
Reliance Brands Ltd. is a direct subsidiary of Reliance Industries Ltd. We have had an unparalleled opportunity to nurture it as a complete start-up, and strategically, at the end of five years, not only do we have a great portfolio of brands but also a bouquet of lovely partnerships; financially, we are quite profitable at the store level and are confident of being cash-positive at the entity level in this coming sixth year of our operations. Usually it takes eight to nine years in emerging markets for profits at the entity level, but in 2015-16, we will be profitable at the entity level in the sixth year.
There have been other major yardsticks of success — I have always fashioned Reliance Brands Ltd. as a game changer for the people who work here — that have been happening. It’s been a very satisfying five years in many ways.
WWD: Do you have more joint ventures than franchises at this time?
DM: I wanted us to be a benchmark of partnerships, and this has been happening both with our joint ventures — which are with Ermenegildo Zegna, Paul & Shark, Brooks Bros., Diesel and Iconix – as well as with the nine other long-term master franchises. There is a different approach for joint ventures, with a stronger sense of long-term commitment, but we bring a great focus to both forms of relationships. In the end we want to be the brands that delight customers, and we have been able to make that happen.
Reliance Brands has more than 18 brand partnerships, which mean more than 24 brands on the Indian market, and six joint ventures, including the one with Japanese company Ryohin Keikaku Co. [Muji], at this time.
WWD: You have more than 100 stores for your mix of brands. Is that overkill, given the customer’s buying power in the more premium segment?
DM: Markets in india are pregnant with latent demand — they are more supply-side markets. If I had the opportunity to open more stores right away, in more suburbs and cities than at present, there are ready customers who would flock to them. But the point is, with adjacencies being so critical in this business — who do you want to sit next to? How good is the visibility of the store? And are there enough malls opening? The real challenge is the supply of relevant retail real estate.
You have to understand the retail scenario in detail. On the broader level you don’t have enough of malls like Emporio [New Delhi] and Palladium [Mumbai]. The initial customers are really in these two cities — not only because they live there, but also people from smaller cities like Chandigarh and Pune go to these cities for work/weddings/holidays, etc. So they have a very high ratio of shoppers and we’re always looking to add on stores in these cities.
A handful of malls is coming up in the next two years — in the Delhi area, for example, there are three locations I know for a fact, including in Chanakyapuri, Noida and Gurgaon, and these would provide more avenues. Clearly the market can absorb many more stores. But these have to happen in the right context.
WWD: Are you happy with the portfolio you have accumulated in the last five years?
DM: The portfolio we have developed has really been about reaching out most to brands that had a ready cache of customers in India. We have some of the finest brands and partnerships in key categories. In the casual category, we have Diesel, Superdry, Quiksilver, Roxy and Gas; in the men’s wear category, we have Zegna, Paul & Shark, Brooks Bros. and Thomas Pink; in footwear, there is Stuart Wietzman, Dune, Steve Madden and Kenneth Cole; and in women’s wear, we have BCBG [MaxAzria and Generation], Juicy Couture, Reiss and Hunkemöller. We also have a joint venture with Iconix where we own a portfolio of 23 brands.
Finally, of course there is Hamleys, which is such a fun toy business. I call this the solitaire in our jewel box.
WWD: Are malls your best options now? Do they replace the options of five-star hotels, which were key for premium and luxury brands?
DM: Five-star hotels are on their last legs — it’s a demise of retail as far as they are concerned. Unlike the chief executive officer of a mall who gets up everyday to understand mall footfall traffic, tenant mix, overall business in terms of sales, etc., the general manager of a five-star hotel is concerned about hotel occupancy, food and beverage performance, etc. And it is a fallacy to think that when rich customers go to five-star hotels to dine at the restaurants there, they are in the headspace to shop. Besides, the lobbies of five-star hotels lack the vibrancy and critical mass, which are so essential to retail.
Time is the new currency. On a Sunday afternoon if the mood is to shop, the destination would surely be a mall rather than a five-star hotel. Notwithstanding this, I am surprised periodically by the penchant of some brands to still build stores in five-star hotels. The stores look stunning but are desolate in terms of customer footfall. I call them “museum stores.”
WWD: What about markets like Connaught Place in New Delhi and Horniman Circle in Mumbai, which Hermès and some other brands have chosen?
DM: You know there are no high streets in India and people don’t have the habit of walking. Also, the weather is hot, and there is no parking. Connaught Place still works as a destination for domestic and some international tourists, more for those who are looking for a “street shopping” experience. Let’s not forget that CP was designed, well ahead of its time, as an open air mall. Horniman Circle, on the other hand, has not at all worked as a retail destination. There is a stunning Hermès store there, but with very little traffic. Most of the store’s business comes from a handful of superrich and loyal customers. The business from street walk-in would be less than 10 percent of the overall business. I’m very happy with Quest Mall in Kolkata, for instance. It has a nice mix of luxury, bridge and mainstream brands, like Palladium in Mumbai, and not only focused on luxury. Select City Walk Mall and Ambience Mall in New Delhi are very good too.
WWD: When you bring in a brand, do you like to link it to a Bollywood celebrity, through advertising campaigns, etc.?
DM: This is something you have to be very careful about. Subliminally when the Indian woman is wearing an international brand, she is living the life of her Western counterpart — this is true of the Asian market in general. The moment you try and “Indianize” the brand in some way, the halo starts cracking. The strategy for fashion brands to use Bollywood personalities as their advertising and marketing ambassadors would work well internationally since these are stunning faces. For the Indian audiences, however, this would at some level take away from the brand’s international imagery since it gives the brand a kind of Indian origin.
On the other hand, Bollywood is a big accelerator for the fashion market in India that other upcoming markets such as China and the Middle East do not have. As I say every so often, “In India fashion comes from the reel and not the ramp.” Bollywood has a huge following and aspirational customers are constantly following and watching the brands that they wear. Thus, they are wonderful brand endorsers and sometimes by their affinity to a particular brand, even become unpaid brand mascots. Celebrity product placement is a powerful tool for every clever fashion marketer.
WWD: How hard do you have to work to build brand awareness?
DM: The beauty of launching and partnering many of the brands that we have — take BCBG, which we just launched in April, for instance — is that the brand arrives much ahead of the store. I often correct my own colleagues saying, “We are not launching the brand, we are launching the store.” I don’t have to tell people what BCBG is. In fact, many people ask whether we are launching Max Azria or Generation — they know enough to be discriminating. Many of the customers now are at that level at which they are really assimilating fashion, and are very cosmopolitan now.
WWD: But you’re at a price disadvantage in India with the high custom duties and the value of the rupee.
DM: Not really. We generally keep a delta of 10 percent plus or minus so that the customers live in a relatively flat world. I think customers are conscious about not having a pricing disadvantage — it’s not so much about having things cheaper or a question of affordability. It’s a mental feeling of not being cheated, of saying, “I know this dress is available for $600, why are you charging me 30 percent more?” It’s difficult to match these expectations. By the time I put the dress on a hanger the currency changes — and are we multiplying the rupee by 60 or 65 to match the dollar?
But the intent is to be right there because we know that the customer does check and so we have got to be reasonably correct about it. It’s as much a part of the game as the assortment you offer. It’s a global world and you have to get it right.
WWD: Has the counterfeit market in India been hard for you to combat?
DM: No. Our customer realizes what is real and what is counterfeit. The world’s largest counterfeit market is in China, which is also the fastest growing market for the “real/original” fashion brands. High-end luxury watches, bags and jewelry, for example, have been so intelligently copied in China that there is little difference between the originals and the fake replicas. Yet at the same time nearly 25 percent of the world’s luxury fashion consumption comes from the Chinese.
Then there is a saying that “fake is the best form of flattery.” Building on this insight, when we launched Diesel in India, our launch party was themed as a “Diesel Fake Party,” as an ode to fake Diesel product. We even created a museum of fakes and at the party, there was a fashion show where body doubles of celebrities walked the runway wearing fake product.
My point is that it’s a myth to say you lose business this way. Those people who buy counterfeit were never your customers in the first place.
WWD: Have any of the brands you have signed up closed down in the last five years?
DM: The only brand that we closed down is Timberland. This was because of issues around their intellectual property protection versus another homegrown brand, Woodland. Not having the ability to protect their IP, they decided, post our closing down the stores, to vacate the India market.
WWD: Is the concept of stylists coming into India now?
DM: Yes, this too is significant change. Not only Bollywood stars but even sports people (read: cricketers), rich socialites, TV personalities, all have personal stylists. As a company we have, even at Reliance Brands, we have a stylist program. Our internal head stylist works with all our consumer-facing employees to create a style quotient for them. Fashion customers do see the store staff as live mannequins and hence the need for them to be correctly styled.
WWD: You have been in the fashion industry for more than 15 years, and have a strong business sense as well. Is that hard to combine?
DM: I think I am exceptionally lucky to be both left-brained and right-brained. I am an accountant by background, and so tend to think in square boxes, as left-brained people tend to think. And then, my last 15 years in the fashion industry have given me exposure to possibly some of the richest and the most talented people in the industry, which has opened many ways of thinking creatively before me. I met Tommy Hilfiger in India, when we first launched the brand in India in 2004 — to others, be it Gildo Zegna or Renzo Rosso or Kenneth Cole. It is a reminder about constantly newer ways of looking at things.
I remember when I first met Renzo and he talked about how Diesel represents a great alternative to luxury and how second, third- and fourth-generation people in Europe want to style themselves for themselves — and are not style victims. From Zegna, I learnt about lineage, consistency and craftsmanship in dealing with nature’s most delicate and unique fibers, and so on.
I think I have been able to bring that to play in this job and use that understanding to move from a meeting on profit and loss, to range planning to store design in fairly quick succession and that is the upside of this job. I’m also lucky to have the world’s coolest job.